12. Income Taxes

For the years ended December 31, 2011, 2010, and 2009, the current and deferred amounts of the income tax expense are summarized as follows:


	2011		2010			2009
	(In thousands)
Current:
Federal	$	26,548	$	16,496		$	(25,226	)
State		10,905		7,379			429

	$	37,453	$	23,875		$	(24,797	)

Deferred:
Federal		10,133		(28,600	)		(26,367	)
State		3,675		(9,904	)		(10,748	)

	$	13,808	$	(38,504	)	$	(37,115	)

Total income tax (benefit)/expense	$	51,261	$	(14,629	)	$	(61,912	)

Temporary differences between the amounts reported in the financial statements and the tax basis of assets and liabilities give rise to deferred taxes. Net deferred tax assets at December 31, 2011, and at December 31, 2010, are included in other assets in the accompanying Consolidated Balance Sheets and are as follows:


	2011			2010
	(In thousands)
Deferred Tax Assets
Loan loss allowance, due to differences in computation of bad debts	$	109,686		$	122,691
Write-down on equity securities		3,609			3,714
Stock option compensation expense		16,048			15,748
State tax		3,744			1,903
Non-accrual interest		2,048			4,004
Write-down on other real estate owned		14,148			16,374
Unrealized loss on interest rate swaps		1,097			2,709
Unrealized loss on securities available-for-sale, net		6,311			741
Other, net		3,536			3,079

Gross deferred tax assets		160,227			170,963

Deferred Tax Liabilities
Core deposit intangibles		(3,919	)		(6,282	)
Investment in aircraft financing trust and venture capital partnerships		(21,628	)		(21,329	)
Dividends on Federal Home Loan Bank common stock		(2,788	)		(4,035	)
Other, net		(5,646	)		(4,876	)

Gross deferred tax liabilities		(33,981	)		(36,522	)
Valuation allowance		(2,533	)		(2,533	)

Net deferred tax assets	$	123,713		$	131,908

Amounts for the current year are based upon estimates and assumptions and could vary from amounts shown on the tax returns as filed.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize all benefits related to these deductible temporary differences except for $2.5 million of state deferred taxes for a portion of the capital losses related to the Company's former investments in the preferred stock of Fannie Mae and Freddie Mac.

As of December 31, 2011, the Company had income tax receivables of approximately $39.3 million, of which $11.2 million relates to the carryback of the Company's net operating loss for 2009 to the 2007 tax year and $9.1 million relates to the carryback of the Company's low income housing tax credits for 2009 to the 2008 tax year. The refunds receivable from the carryback of the Company's net operating loss for 2009 were issued in January 2012. These income tax receivables are included in other assets in the accompanying Consolidated Balance Sheets. Other assets included current income taxes receivable of $23.5 million as of December 31, 2010.

At December 31, 2011, the Company had Federal net operating loss carry forwards of approximately $2.0 million which expire through 2022. The Federal net operating loss carry-forwards were acquired in connection with the Company's acquisition of United Heritage Bank. Federal and state tax laws related to a change in ownership place limitations on the annual amount of operating loss carryovers that can be utilized to offset post-acquisition operating income based on the value of the acquired bank at the ownership change date.

During 2010, the Company paid $1.5 million of California income taxes and $0.9 million of interest upon the completion of the audit of its 2000 to 2002 California income tax returns, recognized $0.5 million in tax benefits upon the expiration of statutes of limitation and a $0.8 million Federal impact of state tax payments. During 2011, the Company paid $0.1 million of state taxes previously recorded in unrecognized tax benefits. The Company had accrued interest and penalties of less than $0.1 million at December 31, 2011, and $0.1 million at December 31, 2010. A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:


	2011			2010
	(In thousands)
Balance, beginning of year	$	519		$	2,593
Expiration of statute of limitations		—			(508	)
Federal impact of state payments		—			843
Payments		(86	)		(2,409	)
Increases for tax positions of prior years.		75			—

Balance, end of year	$	508		$	519

The Company's tax returns are open for audits by the Internal Revenue Service back to 2010 and by the FTB of the State of California back to 2003. The Company is under audit by the California Franchise Tax Board for the years 2003 to 2007. As the Company is presently under audit by a number of tax authorities, it is reasonably possible that unrecognized tax benefits could change significantly over the next twelve months. The Company does not expect that any such changes would have a material impact on its annual effective tax rate.

Income tax expense results in effective tax rates that differ from the statutory Federal income tax rate for the years indicated as follows:


	2011					2010					2009
	(In thousands)
Tax provision at Federal statutory rate	$	52,994		35.0	%	$	(1,072	)	35.0	%	$	(45,042	)	35.0	%
State income taxes, net of Federal income tax benefit		9,477		6.3			(1,641	)	53.5			(6,175	)	4.8
Interest on obligations of state and political subdivisions, which are exempt from Federal taxation		(1,476	)	(1.0	)		(299	)	9.8			(267	)	0.2
Low income housing and other tax credits		(10,087	)	(6.6	)		(11,220	)	366.2			(10,575	)	8.2
Other, net		353		0.2			(397	)	13.0			147		(0.1	)

Total income tax (benefit)/expense	$	51,261		33.9	%	$	(14,629	)	477.5	%	$	(61,912	)	48.1	%